In the Hutong
Upgrading to Firefox 4
Judging by the number of calls I have taken on the subject in the past four days, the rumors of Facebook’s imminent arrival in China are reaching a crescendo. And while the lack of an emphatic denial from Facebook’s appointed spokespeople does not count as a confirmation of such plans, it is a fair bet that the company is considering it.
I think coming to China would be a bad move for the company, and I am not alone. Imagethief Will Moss has explained that operating in China by China’s rules puts Facebook’s global reputation, and thus the goodwill of its worldwide users, at risk. Gady Epstein at Forbes argues that government suspicion of Facebook’s ulterior motives will stand in the way. And Bill Bishop at Digicha thinks Facebook’s own uncoordinated communications will undermine the entire effort.
To me, the core problem with a Facebook venture in China is a weak business case: the risks are high, the costs would be significant, and the upside declines daily. Avoiding the moral issue for now (not ignoring it, just saving it for a separate post), here are the reasons I think Facebook’s board should just say “no” to China.
1. Facebook is too late. There was a time when Facebook had an opportunity to be something amazing in China. My best guess puts that window somewhere between January 2007 and June 2008. Chinese users of the English Facebook site were on the upswing, the government had not blocked the service, and there was some real buzz about the company in the market.
But Facebook, busy with other things, decided that doing a Chinese site would fall into the “too-hard” pile. The moment passed, and local companies have had three years to to clone, localize, and improve on Facebook’s offering, then scale up, consolidate, and in Renren’s case, go public. There is no virgin territory for Facebook in China, no blue ocean, just the prospect of having to slug it out with a bunch of wily local tigers sitting atop the hill using Facebook’s own tactics and sharpening their claws.
Worse, Facebook is contemplating market entry at a time when, according to this presentation from RedTech China, Facebook-style social networking sites are experiencing a slowing in growth, something also suggested by Renren’s quiet restatement of its Q1 user growth numbers.
2. China’s users have been there, done that. As noted above, Chinese users have seen Facebook before, and they have seen it imitated in a dozen different ways. Unless Facebook is planning to offer something radically different, more enticing to Chinese users, and completely impossible for others to imitate, users will come, they will play, they will yawn, and they will go back to what they were doing.
Facebook confronts a distateful choice in China: stick with the company’s trademark formula, hoping to win on name recognition alone, or abandon its core essence in search of differentiation. Doing the former risks getting lumped into the rest of China’s social-networking has-beens, while the latter would deprive the company use of its most important asset – its code – and force it to start from scratch in China while the competition leaped ahead.
3. Competition is brutal, and it is not just RenRen. And speaking of competition, Facebook is coming into a social media environment that is not limited to Facebook lookalikes. The company must also fight chat giant QQ, Sina’s booming Weibo microblogging service, and online forums or BBSs, all of which have either mass, momentum, or both.
Weibo is the uber-threat, with Sina.com prepared to use its deep-pockets to help build its user base far beyond its current 100 million while adding features to take the service far beyond a simple Twitter clone. By the time Facebook launches in China, it may find itself without a market.
4. Facebook was not invented here. As I argued at some length in Advertising Age early last year, online services are born and grow in a specific cultural context. Sometimes those services travel well. Often they do not, and in the case of services that are transplanted from the US to China, successful transplants are all but unknown.
The most important reason those transplants fail is that they apply the formula they used for success in the United States to an online population that uses the internet in subtly but importantly different ways. Local engineers and entrepreneurs, themselves products of the local culture, can see with startling clarity where those gaps lie, and how to exploit them.
There is no reason to believe that Facebook will be any different. And before you suggest that somehow a local partner like Baidu would ameliorate that disadvantage, see below.
5. Welcome to the Post-Foreign China. There was a time when being a foreign company bestowed a cachet that meant ready acceptance among consumers and helpful policies from government. The helpful policies are gone, replaced with a mixture of suspicion, petty harassment, and a belief that foreigners have precious little to offer China anymore; the ready consumer acceptance – in the internet sector specifically – is gone, worn down by a parade of global brands that never lived up to their promise.
Today, being a foreign internet company is a liability, and Facebook will meet widespread doubt, skepticism, derision, and hostility when it launches in China. Many netizens will be pulling for Facebook to fail, will exert themselves to make that failure happen, and will find ready accomplices in competitors and their legions of fanboys/girls.
6. Don’t count on Baidu to help much. Baidu will be the best possible partner for Facebook, but that does not mean that the Chinese search giant will make Facebook’s China problems go away. Baidu has no experience running a successful social networking site, so they will be learning along with Facebook. Facebook will rely on Baidu for air cover with the government, but Baidu has its own mounting issues with the government, ranging from legal action over IPR violations to the recent appearance of two government-sponsored competitors for Baidu’s search business.
If head Facebooker Mark Zuckerberg expects Baidu to focus on the success of Facebook China, he may want to consider the company’s full plate: Baidu has to defend its search position against its own government, handle a new paid music site, build out its efforts in online video and e-commerce ventures against formidable competitors, and create a mobile operating system to beat Android, iPhone, and a dozen other competitors. That does not leave a lot of executive attention or engineering resources for Facebook China.
The Baidu partnership will be helpful, and it will look great to The Street, but it is not going to make Facebook China a success. That will devolve on on Facebook itself.
7. China is mobile, and Facebook does not do mobile very well. I use the Facebook mobile software on two Apple devices, and I am being kind when I say the experience is underwhelming. Facebook still has not figured out how to make an elegant transition to mobile, but China is maybe three years away from more users accessing the Internet on a mobile device than on a PC. Weibo on mobile is not great, but its experience translates much more readily to a mobile screen, and it is easier and more intuitive to use the Weibo app than the Facebook app. Unless Facebook can figure out the formula for success on mobile – including figuring out how to integrate ads – they are going to get creamed in China.
Come if you must
In order for its efforts in China not to backfire on it – much less to be considered a success – Facebook has to proactively address each of these issues, and deal with the implicit opposition of Chinese regulators and U.S. Congresspeople, and avoid backlash among its users, and start offering some consistent messages about how it will deal with operating in China.
Given the time and attention this will take away from keeping the service appealing to the half-billion users it already has and managing an eventual public offering, China looks like a massive potential waste of time and money with a declining upside. But if they are absolutely determined, tomorrow I’ll have a list of what Facebook needs to do to improve their chances for success.
- U.S. Senator Critical of Rumored Facebook-Baidu Tie-up (pcworld.com)
- Were Facebook’s China Plans Really Confirmed? (allfacebook.com)
- Will Facebook partner with Baidu to enter China? (nomoneynoproblem.wordpress.com)
- Rumor: Facebook entering China with help from Baidu (zdnet.com)
- Running for Renren (bbc.co.uk)